Based on the 1992 precedent of Quill Corp v. North Dakota, the U.S. Supreme Court requires that a taxpayer must have a physical presence within the state in order to have sales tax nexus and be liable to collect and remit sales taxes. Although the threshold can be very low, this 26-year old ruling prohibited states from collecting sales tax if there is no physical presence in that state.
Sales tax nexus possibly going away from physical presence standard
The U.S. Supreme Court has recently taken South Dakota v. Wayfair Inc., a case which directly challenges the physical presence nexus standard for sales tax purposes. The case reached the U.S. Supreme Court after a challenge to South Dakota’s legislation enacted in 2016 (SD 106), requiring remote sellers to collect and remit sales taxes if their gross revenue in the state or number of transactions exceed a certain threshold, whether or not they have a physical presence in the state.
The case is expected to be heard in the spring of 2018 with a decision by the end of the current term, expected in June 2018. If the court ultimately decides in favor of South Dakota and overturns Quill, other states may follow and implement legislation requiring sellers to collect and remit sales taxes regardless of a physical presence in that state (i.e. an economic nexus standard which may be similar to income tax nexus criteria).
This article only includes general information and IMS is not, by means of this article, rendering any tax, legal or other professional services. This communication should not be relied upon for any decision or action that may have an impact on your business. Prior to taking any action, you should be in contact with your advisor.